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 Frequently asked questions.

Statutory Demand

When a company is insolvent, it means the company cannot pay its debts as and when they fall due. In these instances, creditors of the debtor company can take various steps to enforce their rights. That includes serving statutory demands. 

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A statutory demand is a formal notice requesting the payment of a debt or the provision of security for that debt.

 

If you’ve been served with a statutory demand, you should seek legal advice immediately.

 

If a debtor company fails to comply with a statutory demand, it faces the possibility of being wound up by order of the court.

 

So, it is important to know your rights if you are served with one.

 

How is a statutory demand served?
A statutory demand may be served either personally or by post.

 

If you are registered as a company in Australia, the statutory demand must be served to your company’s registered office address. 

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Creditors may also serve their statutory demands to a debtor company’s directors.

 

This option is available in the event that the company’s registered office has changed or is unknown to creditors.

 

What can happen if you Ignore a Statutory Demand?
If you ignore the Demand, at the end of 21 days your company will be deemed to be insolvent.


If that occurs, the creditor can then apply to wind up the company:

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  • An Official Liquidator may be appointed by the Court

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  • Your control of the business will be lost

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  • The Liquidator may close or sell the Company, its business or assets

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  • The liquidator may claims against you including for insolvent trading

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  • Your personal assets may be exposed and in jeopardy

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  • Personal Guarantees may be called on and again, your personal assets may be at risk

 

What is an Application for Winding up on Ground of Insolvency?

Winding up proceedings may be commenced by a creditor against a company (in the Supreme Court or the Federal Court), if that company fails to comply with a Statutory Demand for Payment of Debt (Statutory Demand).


A Statutory Demand may be issued by a creditor for a debt in the minimum amount of $4,000. 

 

This is supported by an affidavit and sent to the debtor company’s registered address.

 

If a Statutory Demand is not addressed to within the prescribed time, the debt is presumed to have crystallised and the creditor is to presume that the company is insolvent.

 

After this time, a creditor may proceed with winding up proceedings.

 

The Australian Taxation Office or trade creditors are common examples of who might issue such proceedings.


There are very strict requirements in relation to Statutory Demands, winding up applications and also if a company seeks to set side or defend action being taken against it.

 

Therefore, it is very important to act quickly if you have been issued with a winding up application.

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What is a preferential payment?
A payment made to a creditor whilst the company is insolvent and generally in the six months prior to the date the company is placed into liquidation.

 

These “preferential payments” may be legally clawed back by a liquidator or administrator.

 

If you have received a notice regarding a preferential payment you should obtain our legal advice regarding the validity of their claim and to assist in negotiations with the liquidator.

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Bankruptcy

 Abbott Adams Law also provides legal services in a wide range of bankruptcy areas including:

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  •  Advice in business structures for asset protection purposes

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  • Bankruptcy issues arising in debt recovery matters

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  • Issuing Bankruptcy Notices against individuals

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  • Acting for businesses in bankruptcy proceedings against defaulting debtors

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  • Advising on Bankruptcy Notices received by individuals

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  • Acting for individuals in bankruptcy proceedings brought against them

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  • Advising in relation to voidable preferences including preferential payments to creditors

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  • Dealing with trustees in bankruptcy

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  • Bankruptcy issues arising in commercial litigation and disputes

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What is a bankruptcy notice?
If you haven't paid your debts, the person or organisation you owe money to may serve you with a bankruptcy notice which is a formal demand for payment.

 

You have 4 options:

 

1. Pay the amount owed:
Where the bankruptcy notice was issued, you have 21 days to pay the amount owed.

 

If you don't, you may be committing an 'act of bankruptcy'. 

 

Your creditors may use this to make you bankrupt by order of the court and issue a sequestration order.

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2. Reach an alternative agreement with your creditor:

Where the bankruptcy notice was issued, you have 21 days from the day you receive the notice to come to an agreement with your creditor.

 

Contact your creditor to discuss payment options. 

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3. Make an application to the court:
You have the option to make an application to the court to set aside the judgment or order that led to the bankruptcy notice being issued or to set aside the bankruptcy notice.

 

You may wish to seek our legal advice about this. 

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4. Don't pay the amount owed and don't reach an agreement with your creditor:


If you do not meet the demand for payment, you may be committing an 'act of bankruptcy'.

 

Your creditors may use this to make you bankrupt by order of the court. This is called a sequestration order.

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